Startup founders are aware of the high failure rates for new businesses. In fact, for first-time entrepreneurs, success rates are as low as 18%, according to author Alison Shontell, deputy editor at Business Insider. Success rates do increase with each successive venture, as founders build experience.
A team of analysts at Endeavor Insight found that one way to ensure success is to have strong mentors who guide you as you build your new business. Those mentors might take the form of an advisory board.
Advisory boards have long served as the guiding force of successful companies, helping businesses grow from mid-sized operations to global enterprises. For a small startup, it can seem tempting to gain this expertise from the beginning, since they can provide insights an entrepreneur wouldn’t otherwise have.
As useful as advisory boards are for larger businesses, though, small startups may find they have more than a few drawbacks. Before choosing an advisory board for your startup, consider the following factors to see if one is right for your small business.
Understand the Purpose
The first step in setting up an advisory board is to understand the benefits it can bring to your startup. Some entrepreneurs make the mistake of confusing an advisory board with other types of boards. Here are the key differences:
- Board of Directors: Often put in place once a business is well-established, a board of directors oversees a business’s activities. Startups might consider putting a board of directors in place at the request of investors who want accountability for the funds they’re contributing.
- Scientific/Technical Advisory Board: If your startup is highly specialized, an advisory board may serve in an entirely different capacity than a general advisory board. Pioneers in fields like science, medicine or technology could benefit from having a small team of experts providing guidance and advice.
As opposed to the stewardship of a board of directors or the specialization of a technical board, an advisory board serves to provide business advice, based on its members’ combined expertise. While the advisory board may offer opinions about your decisions, the goal is to support you, not hold you accountable.
Diverse Backgrounds Are a Must
In a survey of 100 startup entrepreneurs, FastCompany found that getting the team right is crucial to a startup’s success. Too often, entrepreneurs must work in solitude in those early months. If they do have partners or team members, they tend to make the mistake of surrounding themselves with the wrong people.
An advisory board can bring a fresh perspective on a new business, especially if the entrepreneur chooses board members from diverse backgrounds. As you put together an advisory board, make sure you select people who will bring a different perspective to the decisions you make instead of filling the slots with people who think exactly the way you do.
Be Prepared to Pay
If you’re lucky, you’ll find people who are so passionate about your startup that they’ll volunteer their time to help you get started. Even so, you’ll more likely find better results by providing some sort of compensation.
Advisory board members are generally paid $1,000 to $1,500 per meeting, plus expenses. If you meet several times a year and have multiple board members, that expense can add up, so be sure your budget can handle it. If it can’t, don’t be afraid to ask for volunteers among your colleagues and networking groups.
Remain in Charge
Over time, an advisory board can become a crutch, preventing the entrepreneur from making a single decision without first passing it through the board. It’s important to ensure that the entrepreneur always has final say in what is done with his company, with the advisory board serving merely to provide guidance.
Be Prepared for Challenges
Before you begin searching for an advisory board, be aware that you’ll probably encounter challenges in your search. First, there’s the complicated process of locating interested advisory board members who have time to help. Once you’ve added them to your team, you’ll need to find a way to coordinate all of your schedules to meet on a fairly regular basis.
Over time, you probably also will find that even if you can locate an advisory board member who can work you into his schedule, occasionally you’ll need to replace that person, as your original board member’s schedule fills up and he or she no longer has time to help.
As you build your new business, an advisory board can provide the guidance you need to move in the right direction. Before you begin the process of recruiting members, however, it’s important to know what having such a board entails. While there are a few challenges connected to having an advisory board, there are also many benefits, including having the expertise of other entrepreneurs as you build your business.
If you’re ready to start getting some advisors, read our article on how to get the five types of advisors every business needs.